IBM Corp., as we all know, is a company that does a lot of things very well. One of the things that IBM does particularly well is keeping outsiders guessing about what it is going to do next.
Big Blue's penchant for secrecy takes many guises. Recently, for instance, one of INC.'s staff writers was curious to find out which smaller companies are involved in the production of the peanut, IBM's forthcoming home computer. So she called the company.
"I wish I could help," an IBM promotion executive told the writer, "but I've never heard of an IBM product called the Peanut." This, at a time when high-technology stocks were taking a dramatic nosedive as a result of rumors about the introduction of IBM's new Peanut!
IBM's obsession with confidentiality and security is nothing new. More than a decade ago, for example, IBM was understandably concerned to discover that one of its own employees was trying to sell a confidential IBM customer list. In an attempt to "sting" the wayward employee, an IBM security agent impersonated the partner of a New Jersey -- based service bureau. When IBM later brought charges against the employee, a New York State judge threw out the case. "The judge told IBM to remember that it was not a law enforcement agency and could not act like one," recalls Richard Imershein, retired director of IBM's competitive analysis group.
Much more recently, IBM orchestrated another sting -- the one chronicled in "Friday the 13th," by Vin McLellan, which begins on page 109 of this issue.
The story focuses on Martin Alpert, founder and president of Tecmar Inc., a small computer company in Cleveland. In June 1982, Tecmar was approached by an IBM employee who claimed he was preparing to leave to start his own company and had "things" -- valuable things -- he wanted to sell. Alpert decided to warn IBM, and, the next morning, IBM security was knocking on his door.
Although Alpert didn't realize it at the time, he was about to land the leading role in a dramatic effort by IBM to trap a group of renegade employees, including some of the best technical minds in the personal computer industry. This sting also ended up in court, where IBM exact ed a series of severe financial and professional concessions from the renegades effectively banishing them for several years from the industry they had helped create.
Surprisingly, the case got scant coverage in the press. To a certain extent, it was overshadowed by the Hitachi sting, in which representatives of Hitachi Ltd. of Japan paid $600,000 to IBM and Federal Bureau of Investigation agents for stolen IBM plans. That case received wide coverage, thanks largely to leaks from IBM, which was eager to dramatize the international embarrassment awaiting overzealous competitors.
In the final analysis, however, the Hitachi case was little more than a footnote in the annals of corporate espionage, an unfortunate practice as old as free enterprise itself. Certainly within IBM, the Tecmar affair had a far greater impact, for IBM used it as a warning to any of its employees who might be having entrepreneurial thoughts on company time.
From that perspective, moreover, the case illustrates how the microcomputer industry is changing some of the rules by which all of us conduct our business. From its inception, after all, the industry has been a hotbed of entrepreneurial activity. Enticed by seemingly limitless opportunities, spurred on by tales of fortunes to be made, encouraged by an abundance of venture capital, who in the industry has not harbored an entrepreneurial thought or two? A company has little choice but to adapt to the pressures of doing business in this kind of environment.
Even as potent a presence in the market as IBM has had to rethink some of its policies -- notably, its legendary employment agreements, which claim virtually everything associated with an individual's employment. Despite those contracts, Big Blue was forced, in August of 1981, to offer payment, in order to spur development of software programs for the IBM Personal Computer. Initially, there was a ceiling of $100,000 for each program; when the rest of the industry scoffed at such miserliness, IBM did away with the ceiling altogether. So why, an outsider might ask, is IBM paying its employees for something it already owns, under terms of its standard employment agreement?
Clearly, IBM is responding to changes in the competitive nature of the marketplace just as surely as the entrepreneur who finds it necessary to part with liberal amounts of equity in order to lure and keep key employees.
Practical and strategic considerations aside, all of this raises some complex and challenging questions about the nature of intellectual property and the relationship between employer and employee. These are, indeed, qiaestions that Martin Alpert was forced to contend with as he carried out his role as undercover agent for IBM. He found the experience unsettling. So do we.
This issue of INC. also contains our "Third Annual Report on the States," beginning on page 139, in which we once again rank the 50 states according to the quality of each one's business climate for smaller companies. As we were putting the finishing touches on the report, Joe Kahn -- a staff writer involved in the project -- ventured to Portland, Maine, for the 75th Annual Meeting of the National Governors' Association. Here, in Kahn's words, is how the chief executive officers of our 50 states spend their time when they are not busy raiding one another's states for business:
"I spent a day at the 75th NGA conference, held this year in Portland, Maine, and although I had personally missed the first 74, this one was not too far from what I had expected. The conference theme was economic-development policy, and much of the agenda was given over to committee meetings and caucuses that in one way or another tackled this broad and thorny issue. Below the surface, to be sure, ran the swifter currents of national politics. Most of the Democratic presidential hopefuls put in an appearance, and Vice-President Bush, who owns a summer home just down the road in Kennebunkport, had everyone over to his place for supper, after which he chewed them out for proposing to raise taxes. But I must say I had the feeling that the states' chief executives really were more interested this time around in getting a handle on sound economic policy than they were in handicapping Reubin Askew's chances in the 1984 New Hampshire primary. Political races come and go, after all, but state venture capital pools and aging infrastructures do not blow in quite the same winds. If, as Bush insisted, national economic recovery is at hand, you would still have a hard time convincing all the governors that state prosperity is just around the corner.
"I tried to stay attuned to a couple of subthemes that suggested themselves from this year's States Report: competition among states for industrial expansion and relocation, and what everyone calls -- without much clear definition -- quality-of-life issues. During the past year, the former was highlighted -- or rather lowlighted -- by the public shouting match between Rudy Perpich, the governor of Minnesota, and William Janklow, his counterpart from South Dakota. Janklow was aggressively wooing companies with newspaper ads highly critical of Minnesota's business climate. Perpich retaliated by branding South Dakota '50th in everything,' a memorable slur. I never did see Janklow at the conference, but I did run into Perpich, and I asked him how congenial he was feeling these days.
" 'Look,' he said with a slight air of exasperation, 'our state economies are in competition with the whole world, not each other. I don't see how the situation is helped any by leading raiding parties against one another. And I'm convinced that luring existing businesses in isn't that important in the long run. Businesses don't move to get tax breaks anyway; if anything, they move to cut labor costs. But we want to develop policies that will guarantee our economic future into 1990 and beyond. That's why I thought it was unethical for one state to go around downgrading another state.'
"I asked him then if he and Janklow had seen fit to bury the hatchet and get on to more positive stuff.
" 'Oh, it's buried, all right,' he said. 'We just don't speak to each other.'
"At one point during the afternoon, I broke away from the formal proceedings and wandered down to the Portland waterfront to have a look at the Bath Iron Works dry dock [see 'Unstatesmanlike Acts,' page 160], the BIW project being a prime example of how public investment can spur private enterprise -- to whose benefit no one is entirely sure. During an ad hoc tour of the facility, I learned of at least one minor setback already: The city of Portland, which faces an estimated $7.5-million tax drain over the next 11 years from its own $15-million investment in BIW, thought it would enhance its cash flow by converting an old city hospital into a boardinghouse for visiting naval personnel. Portland even set aside an extra $350,000 to finance the remodeling. No sooner had it done so, however, than the Navy informed Portland that it would be using its own floating quarters, not the city's. What Portland will do with an empty seafarers' hotel is unclear, but among other uses, it could serve as a reminder that monetary commitments without firm guarantees make risky -- and expensive -- public policy, at best.
"In the quality-of-life category, perhaps the biggest concern of many of the governors was what to do about acid rain. The problem with acid rain is that its victims are seldom close to its source: The sulphur pollution emitted by a Midwest power plant, for example, is often more poisonous to the lakes of Massachusetts than it is to those closer to home. This may seem tangential to the issue of long-range economic development, but I think not. When INC. looked at Austin, Tex. [see 'The Isosceles of Texas is Upon Us,' page 155], we found a city with an active environmental conscience and a sense of protectiveness about its own livability that may prove more valuable in the long run than favorable tax rates and low labor costs put together. If, on the other hand, New England's lakes start dying, so might its economic base, and governors like Massachusetts's Dukakis and New Hampshire's Sununu know it. Tourism is only part of the concern. When the dynamic new companies of the 1980s and '90s seek places to settle, they will be paying acute attention to the quality of local resources: educational, infrastructural, and ecological. States that manage such resources wisely can only be that much more competitive.
"The day ended with a huge clambake for all participants and guests out at Fort Williams Park, on Cape Elizabeth. There were scores of volunteers on hand to feed the multitudes, and all of them were decked out in bloodred T-shirts with 'Got a Question? Ask Me' emblazoned across the front. I decided right away that this was an enormously useful and appropriate piece of clothing to have at a gubernatorial gathering such as this. A lot of people have a lot of questions about how the states will borrow, lend, and spend to meet the economic challenges of the coming decades. Will new technology companies be the cure for what ails many of the states, particularly those in the Midwest suffering from severe contractions in many of the 'smoke stack' industries? Can old industries be retooled, as some feel they can (and must), or will they continue to atrophy from a kind of industrial Darwinism? To what extent can public capital invade private enterprise without sullying both? Will the politics of jobs today obscure the harsh realities about jobs tomorrow?
"Every time you turned around, there was another red T-shirt, and another question. If there are half as many good answers as there were lobsters, the Republic may be all right."